Grant Clawbacks and Repayment Demands

A repayment letter usually arrives with a short deadline and a figure that looks final. It is normally neither, and there is generally more to say in response than an organisation expects.

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Responding to a DemandEligibility DisputesLimitation PeriodsNegotiation

Repayment demands most often arise from ordinary causes: expenditure outside the eligible categories, reports filed late or not at all, an unapproved change to the project, or an underspend that was never returned.

Who does this work. Lexaltico LLP’s government funding and grants service is led by Mitch Parmasar, who is not a lawyer and does not provide legal advice. Where a matter calls for legal advice — a funding agreement, a governance question, a repayment demand — it is handled by a lawyer at Lexaltico LLP. The firm is responsible for all of the work described on this page.

Quick Answer

Can a funder make us repay a grant?

Most funding agreements provide for it, and the usual triggers are ordinary rather than dramatic: money spent outside the eligible categories, reporting that was late or missing, a project that changed without approval, or a surplus that was never returned. A demand is not the end of the matter. Whether the expenditure was in fact eligible, whether the funder agreed to a change in correspondence, whether a reporting failure has been cured, and whether the amount claimed is arithmetically right are all things that can be put to a funder — and are much easier to put early.

Ontario law · Lexaltico LLP, Toronto · introductory call

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WHY IT HAPPENS

The Causes Are Ordinary

Clawbacks rarely involve anything that looks like wrongdoing. The four common causes are expenditure that fell outside the eligible categories, a report that was late or never filed, a change to the project nobody sought approval for, and an underspend that stayed in the organisation’s account.

Each of those describes a competent organisation having a busy year. That is worth saying because boards receiving such a letter often assume they are being accused of something, and respond defensively when what is needed is the file.

THE LETTER

A Short Deadline and a Figure That Looks Final

Demands generally arrive with a date to respond by, and the date is usually short. The figure is presented as a conclusion, and it has often been arrived at by treating everything unsubstantiated as ineligible, which is not the same as a finding that the money was misspent.

Do not ignore it and do not pay it immediately. Both are avoidable mistakes: silence hardens the funder’s position and forfeits the chance to correct an error, and paying a figure that was never checked means paying for expenditure that was probably eligible.

WHAT CAN BE SAID

Four Lines of Response, and They Are Cumulative

First, eligibility: was the expenditure in fact within the categories the agreement permits? Assessors work quickly and categorise conservatively, and a documented explanation of what an item was for frequently moves it.

Second, agreement: did the funder approve the change, even informally? An email from a programme officer is evidence, and organisations routinely have one and do not think to look. Third, cure: a reporting failure that has since been remedied is a different matter from one that persists. Fourth, arithmetic: the amount claimed is a calculation, calculations contain errors, and few organisations check.

These work together. A response that addresses all four, with documents, is a substantially different letter from one that explains why the organisation is doing good work.

THE FILE

Your Position Is Only as Good as the Documents

Everything above depends on the file: the application, the signed agreement, the variations, the invoices and proof of payment, the reports as filed, and the correspondence. Where that exists, a demand is usually answerable. Where it does not, the funder’s figure tends to stand by default.

Assemble it before responding, not during. And do not destroy anything: the retention obligation in the agreement is generally still running, and a gap in records at the moment a dispute begins is the worst possible position to be in.

TIME

Limitation Periods Run From Discovery

Ontario’s basic limitation period is two years, and it runs from when the claim was discovered rather than from when the thing complained of happened. For grant disputes that matters in both directions.

A funder may be able to raise a problem with a grant that closed some time ago, because the clock started when it found out — often at an audit. Equally, an organisation with its own claim, or with a defence that depends on when the funder knew something, needs the dates established early. Anyone facing a demand about an old grant should take advice on the limitation position rather than assume it is too late or too early for either side.

OUTCOMES

Most End in an Agreement

Few of these become litigation. Funders are generally public or charitable bodies with an interest in the recipient continuing to exist, and outcomes commonly involve a reduced figure, a payment schedule, a remediation plan, or a combination.

What is negotiated is not only the amount. Whether the organisation remains eligible to apply in future, and what the funder records about the matter, can matter more in the long run than the money, and neither is usually addressed unless the recipient raises it.

HOW WE WORK

What Lexaltico Does on a Repayment Demand

We read the agreement, the reports and the correspondence, work out what the funder is actually entitled to, and prepare the response — then deal with the funder. The first conversation is usually short: send us the letter and the agreement, and we will say whether there is something to say.

This is legal work and is handled by a lawyer at Lexaltico LLP. Where the matter also needs the funding side reconstructed — which programme, which budget, what was submitted — that is led by Mitch Parmasar, who is not a lawyer. Fees are quoted and agreed in writing before work begins.

Common Questions

Frequently Asked Questions

Can a funder make us repay a grant?

Most agreements provide for it. The usual triggers are ineligible expenditure, late or missing reports, an unapproved change to the project, or a surplus never returned.

Should we just pay it?

Not before it is checked. The figure often treats everything unsubstantiated as ineligible, which is not a finding that money was misspent, and calculations contain errors.

What can we say in response?

That the expenditure was eligible; that the funder agreed to the change, even informally; that a reporting failure has been cured; and that the arithmetic is wrong. Those work together, with documents.

The funder approved a change by email. Does that count?

It is evidence, and organisations frequently have such an email and do not think to look for it. Find the correspondence before responding.

Is there a time limit on a funder coming after us?

Ontario’s basic limitation period is two years and runs from discovery rather than from the event, so a problem found at an audit can concern an older grant. Take advice on the dates rather than assuming.

Will this go to court?

Usually not. Outcomes commonly involve a reduced figure, a payment schedule or a remediation plan, because most funders would rather the recipient continued to exist.

Will we be able to apply for funding again?

That is part of what can be negotiated, along with what the funder records about the matter — and it is often more important than the amount. It is rarely addressed unless the recipient raises it.

What should we do first?

Assemble the file — agreement, reports, invoices, correspondence — do not destroy anything, and get advice before the response deadline rather than after.

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Talk to Us About a Repayment Demand

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What kind of organisation is it? optional

Where are you with it? optional

Is there an application or response deadline? optionalMost funding programmes close on a fixed date and do not reopen, so tell us any date you have.

Which programme, if you know it? optionalFor example SR&ED, IRAP, CSJ, or an Ontario or municipal grant.

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